Aluminum May Outperform Copper

The Royal Bank of Scotland (NYSE:RBS) has released its latest Commodity Companion, covering base and precious metals, iron and the energy complex. Among the major conclusions are the belief that copper will make new record highs by 2013, but that from current prices aluminium may well have the greatest longer term upside.

RBS is looking for world GDP to rebound by 3.6% in 2010, but is looking for commodity prices to pause for an overdue breather after their recent strong rallies. After that the picture brightens considerably.

To put this into perspective and based on the official LME close on October 6,2009,
the major base metals have rallied as follows:

	Date of low	Recovery
Nickel	24 October 008	191%
Zinc	12 December 2008	176%
Lead	29 December 2008	145%
Copper	24 December 2008	109%
Aluminium	24 February 2009	39%

The study produces sets of ranked forecast price moves over two time frames; one year ahead compared with spot average for September 2009, and then through to the average of the second half of 2013.

For the shorter term, natural gas is the top-ranked among the commodities covered followed by palladium, and oil. Then, among the industrial metals, aluminium comes top in terms of projected price gains (over both time horizons), with copper in second place on both counts.

This is why I like Alcoa (NYSE:AA) for the short-term, as well as Southern Copper (NYSE:PCU) and Freeport-McMoRan Copper & Gold (NYSE:FCX). Those who subscribe to the aluminum potential might also be considering Aluminum Corp. of China (NYSE:ACH)

The RBS report noted that the base metals have had an excellent 2009 so far. That's why it is important to remember that commodity markets have not yet reached equilibrium, with massive supply surpluses and "huge inventory mountains" to be eroded. Discretion and being aware of a short-term potential correction needs to be observed at this point.

Disclosure: I currently own shares of AA, PCU, and FCX

Comments

[blacksilver:]

The biggest thing hurting aluminum right is the auto industry,with construction coming in second,until they pick up aluminum will stay weak.There is a big inventory out there,that must come down before that market starts to move.There may be a spike in the market if China starts to load up on it next year,possibly in the spring.Copper may have a good jump before the year is out.I do agree with 2012-2013 we will start to see some record high prices in all base metals.2010 will be a good up year for all metals.

Oct 09 04:26 PM

[Wildebeest:]

"That's why it is important to remember that commodity markets have not yet reached equilibrium, with massive supply surpluses and "huge inventory mountains" to be eroded."

Which only confirms that the current rally in commodities is a mini bubble, disconnected from actual industrial demand.

The Nickel and Aluminum stockpiles are at decade highs.

Oct 09 05:40 PM

[a. palmer jr.:]

I don't know about anyone else but my car doesn't have a whole lot of aluminum in it. My car mostly has steel in the frame, suspension, and body, a bit in the engine and the rest is plastic and fabric in the interior. War materials is what's driving aluminum right now.

Oct 10 09:14 AM

[William Taylor:]

Electric automobiles and wind turbines both use a lot of copper and both are in multi year booms never mind the wiring of the emerging market world. I am betting on copper and have held PCU for years and plan to own it until I die!

Oct 10 10:35 AM

[blacksilver:]

Most cars and trucks have aluminum wheels,transmissions,r... conditioner condensers,heater cores,water evaporators for the air conditioner,starter and alternator housings,manifolds,engine blocks,heads.The list goes on and on,every car has a minimum of 300 pounds of aluminum.Seven milloin less cars being built is two billion pounds of aluminum and you could probably double that to four billion pounds maybe even five billion.

Oct 10 01:19 PM